At any price: Russia is embarking on the construction of South Stream. OSW Commentary No. 98, 2012-12-07

Gazprom is determined to continue its efforts to build the South Stream gas pipeline regardless of the slump on the European gas market and the fact that there is sufficient capacity already in the existing transport infrastructure. The official inauguration of the maritime section of South Stream was held on 7 December this year, but the construction itself will commence in 2014. The agreements concluded so far, both intergovernmental and between corporations, are necessary for the launch of the construction of the new pipeline, but still do not guarantee that the project will be completed on time. First of all, some legal problems have yet to be resolved, such as the evaluation of the compliance of the planned actions with the ‘third energy package’ or the fact that ecological surveys required under European law need to be carried out. Secondly, given the present situation on the European gas market and medium-term forecasts, the high cost of implementation of this project and the maintenance expenses of existing pipelines – which are not being used to full capacity – the new project seems to be unfeasible. However, Gazprom’s determination in its efforts to build the pipeline proves that Russia is ready to take a high economic risk to maintain its dominant position on the European gas supply market; it will restrict the possibilities of alternative infrastructural projects being implemented (above all, the EU’s Southern Corridor) and use the construction of new pipelines as an instrument of political pressure on the present transit countries (especially Ukraine).

Ukrainian economy on the verge of recession. OSW Commentary No. 96, 2012-11-21

In the third quarter of 2012, Ukraine’s economy recorded negative growth (-1.3%) for the first time since its 2009 economic crisis. Q4 GDP is projected to suffer a further decline, bringing Ukraine into formal recession. In addition to the worsening macroeconomic indicators, Ukraine is also facing a series of concomitant economic problems: a growing trade deficit, industrial decline, shrinking foreign exchange reserves, and the weakening of the hryvnia. Poor economic growth is expected to result in lower than projected budget revenues, which in turn could lead to the sequestration of the budget in December. The decline evident across the key economic indicators in the second half of 2012 brings to a close a period of relative economic stability and two years of economic growth, which had been seen as a significant personal achievement of President Viktor Yanukovych and the ruling Party of Regions. The health of the Ukrainian economy largely depends on the state of the country’s export- -oriented industries. The current economic forecasts for foreign markets are not very optimistic. It is impossible to determine whether the current economic downturn is likely to be merely temporary or whether it heralds the onset of a prolonged economic crisis. The limited capacity to deal with the growing economic problems may mean that Kiev will need to seek financial support from abroad. This is particularly significant with regard to external debt servicing, since in 2013 Ukraine will need to pay back around 9 billion USD, including over 5.5 billion USD to the International Monetary Fund. In order to overcome the recession and stabilise public finances, the government may be forced to take a series of unpopular measures, including raising the price of natural gas and utilities. These measures have been stipulated by the IMF as a condition of further financial assistance and the disbursement of the 12 billion USD stabilisation loan granted to Ukraine in July 2010. The only alternative for Western loans and economic reforms appears to be financial support from Russia. The price for Moscow’s help might however turn out to be very high, and precipitate a turn in Kiev’s foreign policy towards a gradual re-integration of former Soviet republics under Moscow-led geopolitical projects.

Russia in Crisis: Year One. OSW Report, January 2010

Economic conditions which had favoured Russia’s development suddenly changed in mid-2008. The Russian economy was hit, on the one hand, by a drastic slump in oil prices (which fell from nearly US$150 to US$50 between July 2008 and January 2009), and on the other by the outflow of investors (a net of US$130 billion of capital left Russia in the fourth quarter of 2008). Within several months, the financial crisis became an economic crisis affecting the entire economy. The financial reserves accumulated in times of prosperity (more than US$162 billion in the stabilisation funds and nearly US$598 billion in the currency and gold reserve) alleviated the negative impact of the crisis, although this failed to prevent the deep declines in macroeconomic indicators. Russia is one of the states most severely affected by the crisis. In the first half of 2009, its GDP fell by 10.4% compared to the same period in the previous year, while industrial production dropped by nearly 15%, and a decrease in investments of over 18% was reported. The poor economic performance has strongly affected the Russian budget, which reported a deficit for the first time in ten years in 2009. During the first year of the crisis (August 2008 – September 2009), Russia’s financial reserves were seriously reduced as a result of the government’s anti-crisis policy and interventions from the central bank: the reserve fund decreased by nearly 45% to US$76 billion, and the central bank’s reserves shrunk by nearly US$200 billion to US$409 billion. Meanwhile, however, the money in the National Welfare Fund, which had been intended almost entirely to subsidise the Pensions Fund between 2010 and 2015, rose almost three-fold (to US$90 billion). According to government forecasts, the money from the reserve fund is also supposed to be spent fully in 2010. The financial crisis has triggered a dynamic outflow of capital from the Russian market. So-called speculative capital was the first to demonstrate the lack of confidence in the Russian market. In the first half of 2009, the growth rate of long-term investments also decreased noticeably, although no spectacular withdrawal of direct investments from Russia has been observed. The economic crisis has also halted the foreign expansion of Russian private capital, while state-owned capital strengthened its position as an investor. Russia’s raw materials companies continue to be the main category of foreign investors; however, new technologies are gaining prominence as the second main direction of Russian investments.

The relief of Vienna in vain. Assessing the Implications of Turkish EU-membership for Council of Ministers’ Decision-making. IES WORKING PAPER 1/2011

This research forecasts the implications of Turkish membership for decision-making effectiveness and dynamics within the Council of Ministers of the European Union (EU). Effectiveness is determined in this research by 'passage probability': the chance that a random proposal as put forth by the European Commission (EC) is accepted by the Council of Ministers. Dynamics are determined by means of the Shapley-Shubik Index (SSI), which plots power values of individual member states by forecasting a number of possible EU enlargement scenarios. This study falsifies earlier research by Baldwin and Widgrén.1 It finds that the implications of Turkish EU-membership for EU decision-making efficiency are ambiguous and depend on the number of other candidate states entering the EU alongside Turkey, as well as the timeslot - 2014 or 2020 - at which the accession would take place. Moreover, this study asserts that Turkish EU-accession would result in unequal- but generally negative - power changes among other EU member states, although member states with similar demographic weight will experience comparable changes. Finally, it appears that the larger a EU member state is, the more power it loses if Turkey would join the EU.

The economic and financial crisis in Russia – background, symptoms and prospects for the future. OSW Report 02/2015

The crisis in Russia’s financial market, which started in mid-December 2014, has exposed the real scale of the economic problems that have been growing in Russia for several years. Over the course of the last year, Russia’s basic macroeconomic indicators deteriorated considerably, the confidence of its citizens in the state and in institutions in charge of economic stability declined, the government and business elites became increasingly dissatisfied with the policy direction adopted by the Kremlin, and fighting started over the shrinking resources. According to forecasts obtained from both governmental and expert communities, Russia will fall into recession in 2015. The present situation is the result of the simultaneous occurrence of three unfavourable trends: the fact that the Russian economy’s resource-based development model has reached the limits of its potential due to structural weaknesses, the dramatic decline in oil prices in the second half of 2014, and the impact of Western economic sanctions. Given the inefficiency of existing systemic mechanisms, in the coming years the Russian leadership will likely resort to ad hoc solutions such as switching to a more interventionist “manual override” mode in governing the state. In the short term, this will allow them to neutralise the most urgent problems, although an effective development policy will be impossible without a fundamental change of the political and economic system in Russia.

Germany’s ‘refugee’ problem. The most important test for Chancellor Merkel and the grand coalition. OSW COMMENTARY NUMBER 182/11.09.2015 2015-09-11

The rapid increase in the number of immigrants from outside of the EU coming to Germany has become the paramount political issue. According to new estimates, the number of individuals expected arrive in Germany in 2015 and apply for asylum there is 800,000, which is nearly twice as many as estimated in earlier forecasts. Various administrative, financial and social problems related to the influx of migrants are becoming increasingly apparent. The problem of ‘refugees’ (in public debate, the terms ‘immigrants’, ‘refugees’, ‘illegal immigrants’, ‘economic immigrants’ have not been clearly defined and have often been used interchangeably) has been culminating for over a year. Despite this, it was being disregarded by Angela Merkel’s government which was preoccupied with debates on how to rescue Greece. It was only daily reports of cases of refugee centres being set on fire that convinced Chancellor Merkel to speak and to make immigration problem a priority issue (Chefsache). Neither the ruling coalition nor the opposition parties have a consistent idea of how Germany should react to the growing number of refugees. In this matter, divisions run across parties. Various solutions have been proposed, from liberalisation of laws on the right to stay in Germany to combating illegal immigration more effectively, which would be possible if asylum granting procedures were accelerated. The proposed solutions have not been properly thought through, instead they are reactive measures inspired by the results of opinion polls. This is why their assumptions are often contradictory. The situation is similar regarding the actions proposed by Chancellor Merkel which involve faster procedures to expel individuals with no right to stay in Germany and a plan to convince other EU states to accept ‘refugees’. None of these ideas is new – they were already present in the German internal debate.

A proposal to revive the European Fiscal Framework. Bruegel Policy Contribution ISSUE 2016/07 MARCH 2016

Pro-cyclical fiscal tightening might be one reason for the anaemic economic recovery in Europe, raising questions about the effectiveness of the EU’s fiscal framework in achieving its two main objectives: public debt sustainability and fiscal stabilisation. • In theory, the current EU fiscal rules, with cyclically adjusted targets, flexibility clauses and the option to enter an excessive deficit procedure, allow for large-scale fiscal stabilisation during a recession. However, implementation of the rules is hindered by the badly-measured structural balance indicator and incorrect forecasts, leading to erroneous policy recommendations. The large number of flexibility clauses makes the system opaque. • The current inefficient European fiscal framework should be replaced with a system based on rules that are more conducive to the two objectives, more transparent, easier to implement and which have a higher potential to be complied with. • The best option, re-designing the fiscal framework from scratch, is currently unrealistic. Therefore we propose to eliminate the structural balance rules and to introduce a new public expenditure rule with debt-correction feedback, embodied in a multi-annual framework, which would also support the central bank’s inflation target. A European Fiscal Council could oversee the system.

Higher order elicitability and Osband’s principle

A statistical functional, such as the mean or the median, is called elicitable if there is a scoring function or loss function such that the correct forecast of the functional is the unique minimizer of the expected score. Such scoring functions are called strictly consistent for the functional. The elicitability of a functional opens the possibility to compare competing forecasts and to rank them in terms of their realized scores. In this paper, we explore the notion of elicitability for multi-dimensional functionals and give both necessary and sufficient conditions for strictly consistent scoring functions. We cover the case of functionals with elicitable components, but we also show that one-dimensional functionals that are not elicitable can be a component of a higher order elicitable functional. In the case of the variance, this is a known result. However, an important result of this paper is that spectral risk measures with a spectral measure with finite support are jointly elicitable if one adds the “correct” quantiles. A direct consequence of applied interest is that the pair (Value at Risk, Expected Shortfall) is jointly elicitable under mild conditions that are usually fulfilled in risk management applications.

Bellingshausen Sea bathymetric compilation

The southern Bellingshausen Sea (SBS) is a rapidly-changing part of West Antarctica, where oceanic and atmospheric warming has led to the recent basal melting and break-up of the Wilkins ice shelf, the dynamic thinning of fringing glaciers, and sea-ice reduction. Accurate sea-floor morphology is vital for understanding the continued effects of each process upon changes within Antarctica's ice sheets. Here we present a new bathymetric grid for the SBS compiled from shipborne echo-sounder, spot-sounding and sub-ice measurements. The 1-km grid is the most detailed compilation for the SBS to-date, revealing large cross-shelf troughs, shallow banks, and deep inner-shelf basins that continue inland of coastal ice shelves. The troughs now serve as pathways which allow warm deep water to access the ice fronts in the SBS. Our dataset highlights areas still lacking bathymetric constraint, as well as regions for further investigation, including the likely routes of palaeo-ice streams. The new compilation is a major improvement upon previous grids and will be a key dataset for incorporating into simulations of ocean circulation, ice-sheet change and history. It will also serve forecasts of ice stability and future sea-level contributions from ice loss in West Antarctica, required for the next IPCC assessment report in 2013.

Research and development opportunities for improved transportation energy usage. Summary technical report.

Transportation Department, Washington, D.C.

A summary of opportunities to conserve transportation energy. Final report. Revised.

Transportation Department, Office of Transportation Energy Policy, Washington, D.C.

Predicting the demand for high occupancy vehicle lanes. Final report.

Federal Highway Administration, Office of Traffic Management and IVHS, Washington, D.C.

Consumer orientations toward fuel efficient vehicles. Executive summary. Final report.

National Highway Traffic Safety Administration, Office of Passenger Vehicle Research, Washington, D.C.

Consumer orientations toward fuel efficient vehicles. Final report.

National Highway Traffic Safety Administration, Office of Passenger Vehicle Research, Washington, D.C.

Analysis of the future effects of the fuel shortage and increased small car usage upon traffic deaths and injuries. Final report. Executive summary.

Transportation Department, Office of Systems Engineering, Washington, D.C.